Issues
Does a district court violate Section Three of the Federal Arbitration Act when the court dismisses a claim subject to arbitration rather than stay the lawsuit?
This case asks the Supreme Court to decide whether Section Three of the Federal Arbitration Act is violated when courts dismiss claims subject to arbitration agreements. Smith, and other delivery truck drivers, argue that the use of “shall” in Section Three compels courts to stay claims pending arbitration, promoting the underlying purposes of the Federal Arbitration Act. Spizzirri counters that the language in Section Three is ambiguous, and allowing courts to dismiss claims will actually promote the efficiency of arbitration agreements and protect these contracts from interference by courts. The outcome of this case has serious implications for the ability of plaintiffs to have courts oversee arbitration agreements and their ability to appeal.
Questions as Framed for the Court by the Parties
Whether Section 3 of the Federal Arbitration Act requires district courts to stay a lawsuit pending arbitration, or whether district courts have discretion to dismiss when all claims are subject to arbitration
Facts
The Federal Arbitration Act (“FAA”) was created to promote an alternative method of dispute resolution. 9 U.S.C. §§ 1–16. The FAA favors the enforcement of arbitration agreements over litigation “in order to realize… lower costs, and greater efficiency and speed. Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp. Under the FAA, arbitration agreements are binding to all parties and enforced by courts. 9 U.S.C. § 201–208. Sometimes, a party may still file a claim subject to arbitration in federal court, in an attempt to gain protection and oversight. Brief for Petitioners, Wendy Smith et al., at 22. Section Three of the FAA specifically states that “the court . . . shall on application of one of parties stay the trial” pending arbitration. 9 U.S.C § 3. A stay in this context usually means that the court will retain jurisdiction to oversee the arbitration process and intervene only if necessary. Brief for Petitioner, at 20–21. A dismissal, on the other hand, forces arbitration without any protection from the courts but can immediately be appealed. Id. at 8. Despite the use of “shall… stay,” in Section Three, four circuit courts have carved out exceptions that allow for district courts to stay or dismiss claims. Forrest v. Spizzirri, at 7. Importantly, the Ninth Circuit has determined that if all the claims presented are subject to mandatory arbitration, then the court retains jurisdiction to dismiss the case. Id. These carveouts have created a split where six circuit courts require claims to be stayed while four circuits allow dismissals. Id. at 7, footnote 4.
The plaintiffs in this case, Wendy Smith and other delivery truck drivers (collectively “Smith”), sued their employer, Keith Spizzirri et al. (collectively “Spizzirri”), in Arizona state court over breach of employment law. Id. at 4. Spizzirri removed the case to the U.S. District Court in Arizona and filed a motion to compel arbitration and dismiss the case. Id. Smith conceded that their claims were subject to mandatory arbitration but argued that the district court should stay their claims rather than dismiss them. Id. at 4. Smith wanted a stay so that the court could monitor the arbitration and review the potential arbitration award. See Id. at 5, 9. The district court sided with Spizzirri, granted the motion to dismiss, and compelled arbitration. Id. at 4.
Smith appealed the decision to the Ninth Circuit and claimed that the text of the FAA compels courts to stay claims pending arbitration rather than dismiss them Id. The Ninth Circuit affirmed the lower court and concluded that “notwithstanding the language of [section three],” the district court has discretion to dismiss Plaintiffs’ suit because the parties agreed that all claims were subject to arbitration.” Id. at 7. The Ninth Circuit relied heavily on its own precedent; and, in a concurring opinion, two judges urged the Supreme Court to use this case as a vehicle to solve the circuit split. Id. at 10.
On, June 14, 2023, Smith filed a petition for a writ of certiorari, and the court granted certiorari on January 12, 2024. Petition for a Writ of Certiorari.
Analysis
TEXT OF SECTION THREE
Smith argues that the Supreme Court should interpret Section Three of the Federal Arbitration Act to require cases to be stayed subject to arbitration until they are actually arbitrated. Brief for Petitioners, Smith et al. at 10. Smith focuses on statutory language that says cases to be arbitrated “shall on application of one of the parties stay the trial of the action until such arbitration” ends. Id. Smith emphasizes that “shall” is mandatory, so courts cannot choose to dismiss claims that they would otherwise have to stay. Id. at 11. Smith supports this reading by pointing to other areas of the FAA where the Supreme Court held that the term “shall” mandates a court to act. Id.
Smith submits that courts’ efforts to get around Section Three’s text is improper policymaking in light of its clear language. Id at 12. Smith maintains that the FAA’s command to “stay the trial of the action” refers to all parts of a given proceeding, not just any trials that would be set aside by an arbitration. Id. at 12-13. In support, Smith points out that the only way to know if trial will be necessary is through first conducting arbitrations, so courts need to stay all parts of a proceeding, including pre- and post- trial motions. Id. at 13-14. Smith contends that Congress understood the words would be interpreted this way, and adopting a construction which allowed pre-trial motions to continue despite a stay would burden the right to arbitration. Id. at 17. Smith concludes that any examination of whether the parties agree that a trial is possible is irrelevant in light of Section Three’s text. Id. at 18-19.
Spizzirri argues that Section Three’s text supports the district court’s decision to dismiss Smith’s case. Brief for Respondents, Spizzirri et al., at 15. Spizzirri submits that the text of Section Three is not clear, as the phrase “stay the trial” means only that the court must somehow stop the trial, but it need not be through a traditional stay. Id. at 16. Spizzirri points to legal dictionaries published in the same time period the FAA was enacted, highlighting that their definitions for “stay” include any measure to delay or even dismiss a proceeding. Id. at 16. Spizzirri also discusses administrative and bankruptcy contexts where courts dismiss cases when they have a statutory mandate to stay further proceedings. Id. at 17. Plus, Spizzirri contends that courts can give stays that are “’permanent’ or ‘irremovable,’’ which are the functional equivalents of dismissals. Id.
Spizzirri asserts that Smith’s implicit definition goes too far beyond stopping proceedings and would include “retainin[ing] jurisdiction and maintain[ing] the case on the court’s docket, with no exceptions whatsoever.” Id. at 18. Spizzirri argues that the FAA clearly states when a court should retain jurisdiction over a case instead of dismissing it. Id. at 19. More narrowly, Spirrizi contends that, if Section Three refers to traditional stays, it only applies to “the trial of the action,” and, here, there will not be a trial because neither party contends the claims are not subject to arbitration. Id. at 22. Spizzirri concludes that courts will be able to know a certain matter does not require a trial when the contract is clear “and both parties agree that the claims must be arbitrated.” Id. at 14.
STRUCTURE AND PURPOSE OF SECTION THREE
Smith argues that their interpretation of Section Three comports with the structure and purpose of the FAA. Brief for Petitioners, Smith, at 19. Smith contends that the FAA carries out the larger Congressional intent to promote arbitration, shown by other provisions that allow for immediate appeals when arbitration is denied, but not granted. Id. at 19–20. Smith points out that a dismissal instead of a stay would allow for an immediate appeal, conflicting with these other provisions. Id. at 20. A stay, Smith emphasizes, would not permit either party to appeal “until after the arbitration has concluded,” and any reading that requires dismissal would undermine the intent behind the FAA. Id. Further, Smith claims that stays allow judges to maintain oversight of the following proceedings as the FAA encourages. Id. at 20–21. If a case was dismissed, Smith submits, then a court could not “appoint arbitrators . . .[or] confirm, vacate, or modify an [arbitration] award.” Id. at 21.
Smith asserts that parties could not just refile their other claims in federal court due to a recent Supreme Court case which restricted the kinds of cases allowed to be filed in federal courts. Id. Smith contends that the FAA explicitly tries to keep non-arbitrated cases in federal courts, and allowing dismissals runs counter to this goal. Id. at 21–22. Smith concludes that allowing stays best fulfills the FAA’s intent to promote arbitration by making sure the court can effectively aid arbitration proceedings and allowing parties “to exit court and enter arbitration ‘as quickly and easily as possible.’” Id. at 22. Without stays, Smith argues, cases would be left without any oversight when arbitration falls through or a party becomes uncooperative. Id. at 21. Smith also emphasizes that the FAA explicitly took away courts’ inherent power to dismiss cases, which Spizzirri’s reading would bring back. Id. at 23. Smith concludes that the FAA prioritizes facilitating arbitration despite other possible concerns involving respect for the courts’ inherent powers and judicial administrability. Id. at 23–24.
In contrast, Spizzirri argues that allowing dismissal of the whole claim comports best with the structure and purpose of the FAA. Brief for Respondents, Spizzirri et al., at 28. Spizzirri contends that Congress never intended to take away courts’ power to dismiss cases, but instead sought purely to promote arbitration. Id. Spizzirri points out that that courts previously ignored arbitration agreements by continuing litigation, and the FAA was designed to ensure courts stopped litigation out of respect for those agreements. Id. at 29. Spizzirri submits that there is no evidence that the FAA was meant to require courts to keep arbitrated cases on their dockets. Id. Spizzirri contends that requiring courts to keep these cases on their dockets could undermine the FAA’s desire to afford parties flexibility in how they settle disputes because many arbitrations would not otherwise ever return to court following arbitration. Id. at 36.
Regarding appeals, Spizzirri contends that Smith takes the statutes which forbid appeals in the middle of litigation out of context. Id. Spizzirri emphasizes that the FAA and appeal statute were passed sixty years apart, and courts traditionally allowed appeals “whether or not the court also dismissed the case.” Id. at 37. Spizzirri surmises that Congress would have used much more concrete language in Section Three if it wanted to change such a longstanding process. Id. Spizzirri argues that Congress is consistent in allowing final decisions “regardless of whether the decision is favorable or hostile to arbitration,” supporting the FAA’s general protection for arbitrations. Id. at 38. Spizzirri submits that allowing dismissals will actually ensure arbitrations proceed as quickly as possible, and Smith’s construction “incentivizes plaintiffs to impose additional time, cost, and complexity” to the courts. Id. at 39. Allowing a court to stay an action in arbitration, Spizzirri says, disincentivizes arbitration through excessive court oversight. Id. at 40. In support, Spizzirri points to some courts’ practice of requiring check-ins when a case is stayed, driving up lawyers’ fees for parties. Id. at 40. Spizzirri concludes that Smith ignores the burdens that mandating stays would impose on courts, undermining the FAA’s pro-arbitration purposes. Id. at 41.
Discussion
ABILITY OF COURTS TO PROTECT PLAINTIFFS
The American Association for Justice (“AAJ,”) in support of neither party, argues that federal courts have a distinct role in protecting plaintiffs. Brief of Amicus Curiae American Association for Justice, in Support of Neither Party at 9. Smith argues that in this role, courts facilitate arbitration when they “appoint arbitrators, compel arbitration witnesses, and review post-arbitration awards.” Brief for Petitioners, Wendy Smith et al., at 8–10. The AAJ points out that arbitration agreements are usually drafted by corporations, employers, and other institutions that leverage significant power over their employees, and customers. Brief of (“AAJ”), at 6–9. The AAJ argues that this results in the companies compelling arbitration, rather than litigation, and then failing to pay fees, or arbitrate in good faith. Id. Smith argues that federal courts are needed to monitor these bad actions, and that this can only be achieved if they stay the litigation. Brief of Petitioners, at 22. Smith ultimately argues that if the Ninth Circuit decision is affirmed, then the judicial safeguards to arbitration afforded by federal courts will be removed. Id.
Spizzirri counters that these protections afforded by federal courts are often pointless because many arbitrations never require “a judgment of the court.” Brief for Respondents Keith Spizzirri, et al., at 35. Even if the claims have substance, Spizzirri argues, if the filing court is forced to preside over the arbitration, then plaintiffs lose the flexibility of choosing if and in what court to file after a dismissal is lost. Id. at 36. Additionally, Spizzirri argues that any protection afforded to plaintiffs by federal court stays is also available if they simply filed a new lawsuit, Brief in Opposition, at 9. Spizzirri argues that plaintiffs will suffer little prejudice if federal courts can dismiss claims, because they can simply file a new meritorious claim if they wish to be protected by federal courts. Id. Further, Spizzirri argues that when a plaintiff is likely to need the assistance of the federal court to enforce arbitration rights, they are already able to persuade the court not to dismiss the case. Id. at 9.
INEFFICIENCIES CREATED
Smith argues that if the court does not decide in their favor, parties will needlessly litigate whether to stay or dismiss the claim which wastes time, and resources. Brief of Petitioners, at 9. Smith argues that allowing needless litigation on whether to stay or dismiss claims erodes any benefits to arbitrating the claim in the first place. Id. The AAJ, in support of neither party, argues that the presumed efficiencies of arbitration are eliminated when power imbalances between companies and workers are not accounted for, so federal courts have a role in countering these issues. Brief of (“AAJ”), at 7. Lastly, Plaintiff-side attorney Aashish Desai argues that staying a claim is more efficient because appealing after a dismissal could take years of litigation to achieve the same bad result for plaintiffs. Khorri Atkinson, Justices’ Latest Arbitration Case Threatens Litigating Strategy, Bloomberg Law.
Spizzirri counters that arbitration creates a quick and easy process to settle disputes, but if the lower court’s ruling is affirmed, federal courts will disrupt this process. Brief of Respondents, at 39. Spizzirri argues that inefficiencies will be created because plaintiffs will be incentivized to file their arbitration claims in federal court for oversight, which will create more litigation. Id. at 39. Further, Spizzirri contends that this litigation will waste time, money, and resources when plaintiff file claims in federal court that are supposed to be arbitrated. Id. at 39. In response to Smith, Spizzirri claims that resources spent litigating a stay or dismissal are minimal compared to the initial filling of an arbitration case in courts. Id. at 42. Lastly, Spizzirri argues that forcing federal courts to stay an arbitration claim and monitor its developments will unduly burden its dockets in addition to wasting plaintiff’s resources. Id. at 40.
Conclusion
Acknowledgments
Additional Resources
- Sarah B. Biser and Craig R. Tractenberg, Supreme Court Agrees to Hear Arbitration Case That Split Appeals Courts, Fox Rothschild (February 5, 2024).
- Steven K. Davidson et al., “Should I Stay or Should I Go” Supreme Court to Address Circuit Clash Over Arbitration Procedures, Steptoe (February 6, 2024).
- Smith v. Spizzirri: Supreme Court to Consider Whether Federal Courts May Dismiss a Lawsuit Subject to Arbitration, Congressional Research Service (March 4, 2024).